Claims the New Plymouth District Council's sold one of Australia's largest dairy farm operations to Chinese investors are quashed; an Australian company says it's still doing due diligence on the offer

An Australian company has announced it’s doing due diligence for the purpose of buying all of the New Plymouth District Council’s A$250 million Tasmanian dairy farms.

OnCard International says it’s made a non-binding offer and paid a deposit, as it looks to acquire the Council’s Van Diemen Land Company (VDL).

It’s made the announcement to the ASX, as the Council’s administrator of the farms, Taranaki Investment Management Limited (TIML), has quashed claims they’ve been sold to Chinese investors.

The Council bought the 25-farm operation after it sold its share in Powerco for NZ$259 million in 2004.

The Australian newspaper yesterday reported one of Australia’s oldest and largest dairy farming operations had effectively been sold to Chinese interests with companies associated with Herman Shao-ming Hu and Kenny Zhang, for AU$220 million.

However TIML says these claims are “substantively incorrect” and there hasn’t been a sale, even though the farms are on the market.

TIML’s chairman Keith Sutton says: “TIML and its advisors are in discussion with a number of parties who are completing due diligence and funding plans – all under strict non-disclosure and confidentiality requirements.”

OnCard International plans to do share capital raising if it gets the thumbs up

OnCard International admits it’s one of these parties.

It recently relinquished its loyalty, rewards and payment solutions businesses, and on Monday lodged an application to change its name to TasFoods.

It reports: “This opportunity [to buy VDL] is consistent with OnCard’s strategy to ultimately build an integrated business based on premium food products primarily sourced from Tasmania.

“It is expected the Company will undertake a share capital raising to assist with funding of the acquisition and will seek shareholder approval if it decides to proceed with the transaction.”

OnCard International’s chairman Rob Woolley told interest.co.nz he understands the farms haven’t been sold, so OnCard International will progress with due diligence and see what the outcome is.

“I don’t think anyone was very impressed with what happened with The Australian yesterday,” he says.

Woolley, who’s just returned to Australia after being in New Zealand for the week, says OnCard International intends to use the farms to produce short-life products such as yoghurt, cream cheese and maybe fresh milk.

He says there is already quite a lot of surplus manufacturing capacity in Tasmania, so it wouldn’t look at building factories in the area.

OnCard International last month announced it agreed to acquire the Tasmanian-based Meander Valley Dairy branded food products business for consideration of A$2.1 million.

Now’s the “appropriate” time for the farms to be sold

TIML’s chief executive Mike Trousselot says a full or partial sale of VDL will allow TIML to diversify and rebalance its portfolio and strategic asset allocation.

He says the dairy farms have boosted production for the seventh consecutive year, with the annual increase in milk solid production cancelling out softer prices. This has allowed the company to almost match last year’s A$52 million record sales revenue.

Returns from the farms have contributed NZ$179m to the New Plymouth District Council’s NZ$217m investment fund since its inception in 2004.

Trousselot says, “While the business is a safe, cashflow positive, well-performing real growth asset, which has generated around a 10% internal rate of return since acquisition, TIML has completed its pre-acquisition business improvement plan, including improvements in farming practice, infrastructure, livestock, and simplification of VDL’s balance sheet and ownership structures. 

“It is now appropriate for TIML to focus on an exit from the investment.

“VDL’s landbank, sufficient to double its current production, and its scale, allows interested parties the option to pursue integrated value chain strategies.”

Furthermore, Trousselot says: “Australian farmers expect to see benefits from the recent free trade agreements with China, Korea, and Japan, underpinned by continued urbanisation and increased demand for protein in developing countries.

“And, with 60% of Australian dairy production consumed domestically, we expect good competition for supply and strong farmgate prices to continue.”